Implications of switching from PPR to Investor Property

Has anyone any experience as to the process involved in changing a First time buyer property into an investment property from a Tax perspective ??

Whats the bottom line ??

If within a 5 year period (i think) of purchase you will have to pay stamp duty at the investors rate i.e. you lose your FTB status
You also lose the tax credits available

You have to register the property
You have to make a return every year showing income (rent) and expenses (including mortgage interest)

AFAIK technically Asdfg is correct (although, the stamp duty clawback may not be 100% and may be on a pro-rata basis, ie if you had stayed in the house for 3 yrs, you may have to repay 40% of the stamp duty etc) I would be interested to know if anyone out there knows if these stamp duty clawbacks are actually collected/paid. I personally don't know of anyone who has paid them, is there a risk that they'll be caught? Do people normally pay these and what mechanism do the revenue use for collecting these?
One thing though, the tax credits, presumably Asdfg is referring to mortgage interest tax credits, these are not lost, they are simply transferred to the mortgage on your new ppr (albeit at a reduced rate, ie non-ftb rate).

Re " You have to register the property"

I've heard its not actually illegal if you don't register, However, if the Private Residential Tenancies Board (PRTB) write out to you "inviting" you to register and you don't, then you break the law. Can anyone confirm this or otherwise ?

I think the law as it stands does oblige you to register the property. However there is no provision in the law to penalise you for not doing so unless and until the PRTB request registration.

From a tax perspective (as opposed to all this red tape on registraion and all that)
- interest on borrowing against the property deductible against the rental income;
- wear and tear deduction available on estimate of fixture and fittings at 12.5%;
- all costs associated with letting are deductible except 'capital';
- except pre letting expenses for 1st letting;
- CGT clock starts based on CMV;
- Commencement may alter stamp duty if exemtion claimed;
- annual return for Case V needed every year.
- I will leave the New Ireland bureaucracy to yourself.

My dad is a builder and is selling me a property to rent in Ireland to rent out.

Basically, I am currently working in the UK but intend to move back in a few years.

The property will be finished next year. He will be selling it to me for €120,000 and it will be worth €180,000.

My interest lies in the comment above CGT clock starts based on CMV.

Does this mean that if I start renting it out and sell it later, CGT will be calculated based on the rise in value from €180,000.

I would assume that I would have to live in the property for, e.g. 1 year before it would be classed as my PPR.

Also, if I left it vacant for 1 year whilst living in the UK, could I claim it as my PPR and then start renting it or would I need to move back and physically be there?

Thanks in advance,

Ronan

Glenbhoy said:

AFAIK technically Asdfg is correct (although, the stamp duty clawback may not be 100% and may be on a pro-rata basis, ie if you had stayed in the house for 3 yrs, you may have to repay 40% of the stamp duty etc)

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This is not correct. The SD clawback is an all or nothing thing.

I would be interested to know if anyone out there knows if these stamp duty clawbacks are actually collected/paid. I personally don't know of anyone who has paid them, is there a risk that they'll be caught? Do people normally pay these and what mechanism do the revenue use for collecting these?

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The clawback liability collected through self assessment, filing and payment. As with any tax evasion failure to discharge this tax liability can lead to problems later on.

ronaldo said:

My interest lies in the comment above CGT clock starts based on CMV.

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Not sure that I understand that myself but where a property is a PPR for some period of time and rented out for another period of time during ownership then some portion of the eventual resale gain when it is sold may be assessable for CGT. For example, a house is owned for 10 years, is a PPR for 3 and is rented out for 7 then (7-1)/10 = 60% of any capital gain will be assessed for CGT. (and, if the rental occurred in the first 5 years of purchase as an owner occupier PPR then the SD clawback will also apply as explained earlier). Note that the timing of the capital gain is irrelevant (e.g. it's a portion of the gain over the 10 years of ownership that is assessable for CGT and not the gain from years 4 to 10 etc.

I would assume that I would have to live in the property for, e.g. 1 year before it would be classed as my PPR.

Also, if I left it vacant for 1 year whilst living in the UK, could I claim it as my PPR and then start renting it or would I need to move back and physically be there?

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In the vast majority of cases the property is only your PPR if you actually live there permanently. There are some exemptions where secondment in work requires you to live elsewhere but these may not apply here.

If in doubt you should really get independent, professional advice on the tax and investment aspects of such an opportunity.